CHECKPOINT; Taking On the Mortgage Giants

By JACKIE CALMES

Published: September 26, 2008

WASHINGTON -- Senator John McCain is correct: He warned two years ago that Congress should rein in Fannie Mae and Freddie Mac, the giant mortgage finance companies, before their financial risk-taking threatened the economy, and Senator Barack Obama did not. But Mr. McCain overstates the role he has played, interviews and Senate records suggest.

Mr. McCain, the Republican presidential nominee, and his campaign have cited his co-sponsorship in 2006 of a Senate bill that would have strengthened government regulation of Fannie Mae and Freddie Mac. Mr. Obama, the Democratic nominee, was ''silent,'' Mr. McCain tells campaign audiences, and he blames Mr. Obama's ties to Fannie Mae executives, particularly former chairmen James A. Johnson and Franklin D. Raines. Mr. Johnson has been a senior Obama adviser, but both Mr. Obama and Mr. Raines say they met once, for just minutes.

The McCain camp has hammered this attack against Mr. Obama in recent days, to counter news media reports of his own campaign advisers' ties as lobbyists and consultants for the companies. Freddie Mac paid $15,000 a month to a firm co-owned by Mr. McCain's campaign manager, Rick Davis, from 2005 through August, just before the government seized the mortgage company.

''Two years ago, I warned the American people about the lack of oversight, transparency, backroom dealings and financial recklessness at Freddie Mac and Fannie Mae,'' Mr. McCain said on Tuesday in Michigan. ''Those warnings went unheeded, and more than anything directly contributed to the subprime mortgage crisis which has created the perfect economic storm.''

Last week in Iowa, he told supporters: ''When I pushed legislation to reform Fannie Mae and Freddie Mac, Senator Obama was silent. He didn't lift a finger to avert this crisis.''

Mr. McCain's running mate, Gov. Sarah Palin of Alaska, has echoed him. Asked by Katie Couric of CBS on Wednesday night for examples other than in 2006 when Mr. McCain was ''leading the charge for more oversight,'' Ms. Palin called that year's example ''paramount.''

The 2006 legislation that the McCain campaign cites was introduced more than a year earlier, in January 2005, by Senator Chuck Hagel, Republican of Nebraska, and co-sponsored the same day by two Republican colleagues, John E. Sununu of New Hampshire and Elizabeth Dole of North Carolina.

Mr. McCain added his name as a co-sponsor 16 months later, on May 25, 2006, and made a short speech in the Senate that day to note it. He did so the same week a regulatory agency filed a report charging that Fannie Mae had inflated its earnings, winning big bonuses for its executives.

''If Congress does not act,'' Mr. McCain said in the Senate, ''American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.''

Republicans and Democrats in the Senate familiar with the legislation and lobbyists for Fannie Mae and Freddie Mac say that speech was the only action by Mr. McCain they recall on the issue. Mr. McCain ''never took on the role that some other Republicans did'' to try to limit the companies, said a former Freddie Mac executive who later lobbied for the company until its failure.

''I remember working against a number of amendments, and they were always introduced by Hagel and Sununu,'' said the former executive. ''John McCain was never anywhere to be found.''

Senators Hagel, Sununu and Dole were all on the Banking Committee at the time. Mr. McCain never was.

In response, the McCain campaign noted -- as it has on occasion before -- that Mr. McCain was a critic of the two companies even before 2006, when he was chairman of the Senate Commerce Committee. Fannie Mae and Freddie Mac, while shareholder-owned and long profitable, had government charters making them responsible for keeping cash flowing to banks for mortgage loans. That gave them an implied taxpayer backing should they fail. That government guarantee allowed the companies to borrow money at below-market rates, which they did to buy up the risky mortgage-backed securities that, along with their debt, brought them down.

A campaign spokesman said that in about 2003, Mr. McCain directed the Commerce Committee staff to plan a hearing on the compensation of the companies' executives. The staff did some work, but no hearing was held.

The McCain campaign also noted that in 2003 Mr. McCain was one of only five senators, all Republicans, who sponsored a bill to strengthen regulation of Fannie Mae and Freddie Mac. Neither the 2003 nor the 2006 versions came to a Senate vote. Democrats on the Banking Committee opposed them. Like Mr. McCain, Mr. Obama was not on the committee. In 2006, Senate Democrats proposed an alternative, but the White House opposed it as too weak and the legislation died.

PHOTOS: Senators Chuck Hagel, Elizabeth Dole and John E. Sununu were the main players in trying to rein in mortgage lenders.